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Timeless Tax-Saving Strategies Provide Tax Season Benefit

At this stage of the filing season, taxpayers generally have a fairly good idea of their company’s 2014 results and are scrambling desperately to find additional deductions to reduce tax they will owe in April. Unfortunately, deductions are tough to come by after the fact, which is why Anders is focused on providing tax planning strategies that aren’t so time sensitive.

In the January Real Estate and Construction newsletter, we suggested considering a grouping election to combine ‘like’ activities. Grouping elections can minimize a taxpayer’s exposure to the Net Investment Income Tax or allow for the deduction of losses that would otherwise be passive activity losses that carry forward to be deducted in a future year.

Another timeless strategy for real estate professionals to consider is having a cost segregation study performed on a real estate investment. Generally speaking, commercial real estate is depreciated over 39 years but the related loan is payable over a much shorter period creating an inherent mismatch of cash outflows and tax deductions. Cost segregation studies allow taxpayers to componentize a building and depreciate portions of the building over an accelerated period creating significant tax savings in the process. Cost segregations can be performed on new and old buildings alike, but the benefit is greatest if a study is performed within the first 10 years of purchase.

Similarly, we’ve written extensively on the taxpayer friendly attributes of the (relatively) newly issued Tangible Property Repair Regulations. Among other things, these regulations provide taxpayers a onetime only opportunity to scrutinize fixed asset schedules and write-off items which were capitalized prior to their issuance. The regulations also added a bit of an administrative burden, so many small businesses were relieved to hear the IRS issued relief from what was originally a mandatory change in accounting method filing on IRS Form 3115. However, as my colleague, Dave Finklang, points out in today’s newsletter, it’s important for taxpayers, particularly those in the real estate industry, to realize it may be in their best interest to continue down the path of a repair regulations study despite this recent announcement from the IRS.

As always, please contact an Anders advisor to discuss the strategies detailed above and other ideas to make April less painful this year.